Pension Salary Sacrifice Calculator — 2025-26 Tax Year

How pension salary sacrifice works

With pension salary sacrifice, you agree to a contractual reduction in your gross salary. Your employer then pays the equivalent amount directly into your workplace pension scheme as an employer contribution. Because the money never forms part of your taxable pay, you avoid both income tax and employee National Insurance on the sacrificed amount.

Critically, this is different from a standard employee pension contribution. With a normal contribution, you pay from your net salary and receive tax relief — but you still pay NI on the full salary. With salary sacrifice, you save NI as well as tax, and the employer also saves their NI (15% in 2025-26).

Worked example: basic-rate taxpayer

An employee earning £35,000 wants to contribute 5% (£1,750) to their pension:

• Gross salary reduces from £35,000 to £33,250
• Income tax saving: £350 (£1,750 × 20%)
• Employee NI saving: £140 (£1,750 × 8%)
• Total employee saving: £490 per year
• Employer NI saving: £262.50 (£1,750 × 15%)
• Pension pot receives the full £1,750

Without salary sacrifice, the employee would pay the £1,750 from net pay and receive £350 in tax relief — but would still pay the £140 in NI, and the employer would save nothing. Salary sacrifice delivers an additional £402.50 in combined savings.

Worked example: higher-rate taxpayer

An employee earning £65,000 sacrifices 8% (£5,200) for pension:

• Gross salary reduces from £65,000 to £59,800
• Income tax saving: £2,080 (£5,200 × 40%)
• Employee NI saving: £104 (£5,200 × 2%, as earnings above £50,270 attract 2% NI)
• Total employee saving: £2,184 per year
• Employer NI saving: £780 (£5,200 × 15%)
• Pension pot receives the full £5,200

For higher-rate taxpayers, the income tax saving alone is substantial. When combined with employer NI savings, the total benefit of salary sacrifice compared to a standard contribution is significant.

Scottish taxpayers and pension salary sacrifice

Scotland has its own income tax bands with six rates, from the 19% starter rate through to the 48% top rate. Scottish taxpayers at the intermediate rate (21%) and above benefit meaningfully from pension salary sacrifice. Those earning between £43,663 and £75,000 (the Scottish higher rate band at 42%) save even more than their rest-of-UK counterparts on the same salary.

Our employee calculator fully supports Scottish tax rates and will show you the correct savings for your location.

Why employers should offer pension salary sacrifice

For employers, pension salary sacrifice is effectively free money. The employer saves 15% NI on every pound sacrificed by employees — and many organisations choose to share some of this saving back with employees by increasing pension contributions slightly, making the scheme even more attractive.

With the April 2025 employer NI increase to 15%, the savings are greater than ever. An organisation with 200 employees averaging £3,000 in annual pension sacrifice would save £90,000 per year in employer NI — a substantial offset against the increased employment costs.

Use our employer calculator to model pension salary sacrifice savings alongside other benefits such as EV car schemes and cycle-to-work.

NMW compliance and pension salary sacrifice

Pension salary sacrifice must not reduce an employee's effective hourly rate below the National Minimum Wage (£12.21 per hour for ages 21+ in 2025-26). For lower-paid employees, this limits the amount that can be sacrificed. Our calculator includes automatic NMW compliance checks to ensure all arrangements are lawful.